What Happens if Stablecoins Win?

Editor’s note: As part of CoinDesk’s Payments Week we asked a number of engineers, executives and experts to weigh in on the substantial issues raised by the crypto industry. In this roundtable discussion they answer: How might the world be different if stablecoins take off?

This article is part of CoinDesk’s Payments Week series.

Privately issued stablecoins have the ability to extend access to the dollar to brand-new markets that have previously been locked out. While there is a long history of privately issued money going wrong, we now have the tools to audit and safeguard consumers against most of those risks. Creating demand for the dollar around the world by giving more people access to it is a win-win for the U.S. and global economy.

– Will Reeves, CEO and co-founder of Fold

Having multiple fiat currencies introduces a huge amount of friction into the world economy via conversion costs, restrictions on purchases and lost value. At a time when daily data output is measured in exabytes and transmitted via Starlink, janky fiat currencies only survive by coercion.

It’s possible, however, we might crowdsource a better option. In 1906, Sir Francis Galton observed that the median guess of a crowd of 800 people betting on the weight of an ox was correct within a 1% margin of error. This has become known as “the wisdom of crowds.”

To some extent, crypto today is a global attempt at putting brain power towards guessing the best money. All the better that “guess the best stablecoin” is supercharged by the fact that people are financially invested in the conclusion – they have skin in the game.

Jeff Booth, author of “The Price of Tomorrow,” has said that “Intelligence is error-correction.” Fiat currencies are like a global dementia, introducing tiny errors into the trillions of financial decisions the world makes every day. Converging on a single stablecoin would be like a shot of NZT: every decision would be fractionally smarter, summing up to a huge boost to our collective intelligence.

See also: Your Wallet in 2030 Will Be Full of Free Money | Opinion

The problems of poverty, inequality and social justice would still exist in a world with a crowdsourced stablecoin, but at least with a rational mechanism to make decisions our hive mind could begin to think clearly about the solutions.

– libertant, content manager at Windranger Labs

Merchants, in general, don’t want to settle in volatile crypto. They have a balance sheet, they have accounting, they have rules they have to abide to. It’s really complicated to have crypto on your balance sheet, so they tend to prefer stablecoins from that perspective. They’re very open to keeping stablecoins on their balance sheets because then they can turn around and pay their employees, pay their providers across borders and essentially have something from a settlement point of view. That’s much more powerful than having cash in a bank account.

– Joao Reginatto, vice president of product at Circle, speaking during a CoinDesk “Payments Week” Twitter Spaces event.

Stablecoins that are asset-backed and audited seem to present a good solution that combines the authority of a government and the value of tangible assets to preserve financial value. The more exploratory area of stablecoins involves complicated algorithms and financial incentives – like the decentralized network Terra. Whichever becomes the dominant solution, both offer the opportunity to transfer an amount of money relatively instantly at a very low cost without middlemen. That means no more need for Visa or Mastercard to process payments.

The key to making crypto payments successful is enabling everyone to own crypto and pay with crypto easily. Having salaries paid in USDC, a cryptocurrency pegged to the U.S. dollar, or another stablecoin would help catalyze industry growth as people wouldn’t need to “on-ramp” into crypto. Additionally, point-of-sale systems need to accept crypto as a form of payment by default.

Today, most stablecoins track the value of fiat currencies but we might see the adoption of coins pegged to valuable assets like gold. These might, in reality, prove to be the best for when “paying with crypto” due to possibly being inflation-resistance. But for day-to-day transactions – whether using BTC, ETH, SOL, etc. – transaction and conversion costs will be important. The cost of paying for goods and services would need to be less than the average 3% transaction fees imposed by large credit, debit and app payment processors to prove valuable to merchants.

– Kyle Zappitell, CEO of Neon

Satoshi described Bitcoin as “a peer-to-peer electronic cash system,” or a digital money as private and free as the notes in your wallet. It’s a compelling vision given that payments today are a mess of incompatible national standards. Systems like SWIFT, which are useful only to large institutions, are rent-seeking intermediaries whose profits push up the cost of nearly every transaction on the planet.

The journey from technical breakthrough to mass adoption has been long, and requires overcoming multiple challenges before the dream of replacing the rickety old financial system with its gatekeepers and built-in surveillance can be realized.

But, simply said, crypto isn’t a viable end-to-end payments product – yet. It will be a while before there’s a crypto offering with a serious chance of success against the likes of Visa or Apple Pay.

Bitcoin, ether and other “native network tokens” are still too volatile for serious real world payments, and transaction fees on most chains are too high for all but the largest payments. The [user experience] is often still poor, and integrations with the wider business and the financial world are held back by technical and regulatory uncertainty. Nobody wants to integrate with something that might be dead in a year’s time.

See also: Why Haven't Crypto Payments Taken Off? | Opinion

But progress is being made and the future looks brighter. UX is improving by the day, and faster, more efficient blockchains and scaling layers with lower fees are coming thick and fast. Stablecoins make payments a possibility, like Satoshi envisioned, even with the underlying volatility of crypto. And regulators are showing signs that they might clarify the rules around stablecoins (making like more like banks) and allow the industry to move forward.

– Barney Mannerings, founder of Vega

Stablecoins solve the problem of crypto price volatility while granting businesses access to Web 3-enabled liquidity and capital markets, and we’re making strides in navigating a big hurdle to adoption – regulatory clarity. In fact, the U.K. Treasury recently announced that it will begin regulating stablecoins as part of a wider plan to turn the nation into a hub for digital payment companies. This is part of a rising tide of governments and regulators recognizing the potential value of stablecoins as reliable, asset-backed financial instruments designed to enable high-volume, daily payments.

Read More: UK Crypto Industry Hopes for More Clarity From Planned Stablecoin Rules

Stablecoins’ usefulness may be old news for experienced decentralized finance (DeFi) proponents, but big regulatory moves like this provide much-needed legal clarity and awareness for legacy businesses interested in future-proofing their existing payment processes and delivering more value to their customers. This is why the growing acceptance of stablecoins is so important – because these assets are more immediately useful to businesses and consumers than other more experimental protocols and Web 3-based thought experiments.

At the end of the day, crypto entrepreneurs need to keep in mind that distributed ledger technology and cryptocurrencies are just a means, not an end, to addressing the real-world challenges businesses and ordinary consumers face.

– Antoni Zolciak, co-founder of Aleph Zero

Thanks to NFTs, stablecoins can be bundled together with other tokens and currencies, and users will be able to imprint music, video or images onto or within their transactions. Payments already value in themselves, but now can make their personal meaning more known, more apparent, more literal. We are on the cusp of seeing this NFTs/stablecoins combination to create an entirely new emotional and economic model in crypto and – more significantly – personal finance.

Imagine sending to your husband a currency transfer jointly with a video of your newborn child? Or sending 100 USDT with a CryptoPunk? People will spend in different ways, but also design their bundles for each occasion. Perhaps some stablecoins will even be pegged to the value of an NFT along with fiat or some algorithm. This bundle allows stablecoins to integrate into art and finance, creating infinite possibilities to advance our culture.

– Alexander Mitrovich, CEO of Unique Network

The evolution in interest among TradFi, which was once dominated by diehard crypto skeptics, from crypto curiosity to crypto commitment is perhaps the industry’s most important move yet.

Porn, gambling and even furniture sales are deemed “high-risk” merchant categories. Sometimes the risk is financial; other times it’s just bad publicity.

How and why those original digital payments projects are no longer with us today can give us an idea of what needs to be done to do it right. This piece is part of CoinDesk's Payments Week.